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Video streaming service Netflix is protecting against a hostile takeover with the adoption of a stockholder rights plan, the company announced today. According to Netflix, "The Rights Plan is intended to protect Netflix and its stockholders from efforts to obtain control of Netflix that the Board of Directors determines are not in the best interests of Netflix and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Netflix." According to everyone else, the Rights Plan is intended to stop investor Carl Icahn from purchasing more of the company than he already has.

Video streaming service Netflix is protecting against a hostile takeover with the adoption of a stockholder rights plan, the company announced today.

The plan gives each shareholder a dividend distribution of one right per outstanding share of common stock. If a person or group acquires 10 percent of the company or more (or 20 percent for institutional investors filing on Schedule 13G), each right will allow shareholders to buy one one-thousandth of a share of a new series of participating preferred stock for $350 apiece.

According to Netflix, “The Rights Plan is intended to protect Netflix and its stockholders from efforts to obtain control of Netflix that the Board of Directors determines are not in the best interests of Netflix and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Netflix.”

According to everyone else, the Rights Plan is intended to stop investor Carl Icahn from purchasing more of the company than he already has.

The move is designed to make a hostile takeover too expensive and gives Netflix Chief Executive Officer Reed Hastings a tool to thwart Icahn or other potential buyers. Icahn, 76, said on Oct. 31 he had acquired stock and options representing 5.54 million Netflix shares. He said the video service is an attractive target for larger companies, including Amazon.com Inc. (AMZN) and Verizon Communications Inc. (VZ), that have entered the market Netflix pioneered.

By allowing shareholders to buy more stock through these new rights, Netflix is able to dilute the value of the stock by putting more shares out there on the market. If an outside investor still wants to attempt a takeover, they will have to purchase even more shares than before, making the process more expensive than it would have been previously.